Levine on Wall Street: Spies at the Stock Exchange

Matt Levine is a Bloomberg View columnist. He was an editor of Dealbreaker, an investment banker at Goldman Sachs, a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz and a clerk for the U.S. Court of Appeals for the Third Circuit.
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I LOVE THESE SPIES. There's a tenuous financial angle because one of the three men arrested yesterday for being Russian spies had a cover job working at a bank. And his handlers were asked -- by someone, "it came down from the top" -- to help a Russian state news organization come up with questions to ask the New York Stock Exchange. So they (allegedly, allegedly!) asked their banker spy to come up with questions, and he did. On a recorded phone call:

EB is Evgeny Buryakov, the banker; IS is Igor Sporyshev, his alleged handler, who "served as Trade Representative of the Russian Federation in New York." So now you know: If anyone worries about exchange traded funds destabilizing the market, or suggests that we should limit electronic trading, they might have been put up to it by Russian spies!

The complaint is full of wonders: The FBI bugged the offices of the Russian spy agency in New York (impressive!), and learned that the spies spent much of their time grumbling about how their lives were not like Bond movies ("... movies about James Bond. Of course, I wouldn't fly helicopters, but pretend to be someone else at a minimum"). The lesson is that all jobs are disappointing. Less impressively, the FBI set up a meeting between an informant and Buryakov that was transparently a trap -- Sporyshev called the FBI's story "Casino, Russia, like, some sort of a set up. Trap of some sort. I cannot understand what the point is." -- and Sporyshev let Buryakov go to it anyway. That's good spying. As is this:

These meetings were nearly always preceded by a short telephone call between BURYAKOV and SPORYSHEV during which one of the men typically told the other that he had an item to give to him. Typically, during these telephone calls, which were intercepted by the FBI, the item in question was referred to as some non-specific “ticket,” “book,” “list,” or other ordinary item (e.g., “umbrella” or “hat”).

Subsequently, at each meeting surveilled by the FBI, BURYAKOV and SPORYSHEV met and sometimes exchanged documents or other small items. Notably, despite discussing on approximately one dozen occasions the need to meet to transfer “tickets,” BURYAKOV and SPORYSHEV, were – other than one occasion where they discussed going to a movie – never observed attending, or discussing in any detail, events that would typically require tickets, such as a sporting event or concert.

In other Russia news.

Standard & Poor's downgraded Russia's credit rating to BB+, "the same level as countries including Bulgaria and Indonesia," because, I mean, you know why. (Oil, Ukraine, sanctions.) Here is Mohamed El-Erian at Bloomberg View on the downgrade, which he thinks "is likely to lead to further currency depreciation, capital flight, and could advance the timetable for import and capital controls." The International Monetary Fund is getting pressure to lend more to Ukraine, which still has a $15 billion funding gap and no particularly clear ideas of how to fill it. Russia's bankers -- the ones who aren't spies, or wait, are they? -- are worried about the possibility of Russian banks being excluded from the Swift payment system. And Russia's SB Bank "said on its website that it would no longer give cash to clients, without elaborating," which is not especially comforting. That sort of thing calls for some elaboration.

Elsewhere in payment systems.

Here is a Federal Reserve report on "Strategies for Improving the U.S. Payment System," which, I mean, here is Strategy #1:

Strategy #1 – Actively engage with stakeholders on initiatives designed to improve the U.S. payment system

Establish and enhance mechanisms for payment stakeholders to provide strategic input to and support for the strategies set forth in this paper (and their evolution over time), including the establishment of a faster payments task force and a payment security task force

Provide additional opportunities for stakeholders to submit feedback and stay informed about payment system improvement activities using a range of online and in-person engagement mechanisms

So it's ... have a lot of meetings. Hmm. One strategy that is not particularly emphasized is just getting rid of the dollar payments system entirely and going over to bitcoin; bitcoin "was not considered a sufficiently mature technology at this time, but was identified for further exploration and monitoring given significant interest in the marketplace." So more meetings. Elsewhere in bitcoin, the Winklevii are still around:

"In the last few weeks the price has been kind of low. I view that as a buying opportunity. We have never sold bitcoin," he said. "For people who love volatility, or like to trade between different markets and stuff, there's plenty there. But we're more taking a long-term view."

Fund management.

What happens when you get rid of a famous superstar bond manager and remake your West Coast-based fund management company in a less confrontational, more team-oriented style? I guess Pimco will find out, but meanwhile Institutional Investor asked Trust Company of the West that question, five years after TCW fired Jeffrey Gundlach. Things seem to be going well: TCW is now mostly owned by the Carlyle Group and its managers, and is team-oriented enough that Carlyle Group partner Olivier Sarkozy gets to say "the names 'Laird' and 'Tad' are deliberately subordinated to the concept of a team producing investment products with superior results," referring to fixed-income managers Tad Rivelle and Laird Landmann.

Elsewhere, stock dispersion is up, meaning that stock-picking mutual funds have a chance of beating their benchmarks (or of missing by more!). And Steve Cohen has considered the Securities and Exchange Commission's demand that he be banned from managing outside money for life, and has counter-offered a three year ban. My basic reaction is that if I had billions of dollars and federal prosecutors wanted me to retire, I would just retire, but of course that is why I don't have billions of dollars, or federal prosecutors watching my every move. I guess Point72, which right now manages Cohen's money, will attract better employees if it can be a "hedge fund" managing outside money, and that would be good for Cohen's own money, and sense of fun. Still it seems like a lot of hassle; at this point if I were him I'd just collect art and fume.

Internal devaluation.

If you're a Swiss company that relies on revenue from the eurozone -- say, a ski resort catering to European tourists -- then the recent rapid rise in the Swiss franc will have made your prices less competitive. One thing you could do in response would be to cut prices. Another thing you could do would be to pretend that the Swiss franc never appreciated and is still 1.35 francs to the euro, a level it last saw in 2010. That is the strategy of Grächen, a ski village with its own exchange rate. So you can buy 100 euros down the mountain for about 102 francs, schlep them up the mountain, and get back 135 francs at the top. I mean, 135 francs worth of stuff, anyway, at "the vast majority of hotels, shops, lift pass providers and restaurants" in Grächen. This is probably not a particularly attractive arbitrage opportunity. "We had to do something so we decided to play central bank," says the director of the tourism office, which seems like a very Swiss thing to say.

Meanwhile in Greece.

Paul Krugman makes the Keynesian case for Greece to stop running a primary surplus. Ferdinando Giugliano (and Tyler Cowen) points out that Greece's interest expense, as a percentage of GDP, is less than Italy's or Spain's, making calls for Greek debt forgiveness somewhat awkward. And "Greece’s new finance minister learned about tearing down capitalism from working at a video game company," where he was "the chief economist for a bustling virtual economy." (Not bitcoin.) And so, as you might expect, his leftism is a sort of techno-utopian leftism:

The current system of corporate governance is bunk. Capitalist corporations are on the way to certain extinction. Replete with hierarchies that are exceedingly wasteful of human talent and energies, intertwined with toxic finance, co-dependent with political structures that are losing democratic legitimacy fast, a form of post-capitalist, decentralised corporation will, sooner or later, emerge.

Yeah I mean that sounds like Uber.

Would you trust Finra?

Here's an amazing little story about how the Financial Industry Regulatory Authority is asking brokers to basically send Finra all of their clients' account information so Finra can check to see if the brokers are churning accounts or doing other bad stuff. (It calls this "the Comprehensive Automated Risk Data System, or Cards"). And the brokers are pushing back because ... well, it's a little hard to tell, are they just trying to avoid regulation, or are they genuinely concerned about the possibility of a data breach at Finra? Here is a consumer advocate:

Ms. Roper said that some of the industry’s arguments were disingenuous. Brokerage firms regularly rely on Big Data in their own businesses, even making account access easily available on mobile devices, she said. “They don’t say, ‘Stop, don’t do it,’ when it’s a matter of their profits,” she said. “But they seem to think Big Data represents some unacceptable risk if the purpose is to enhance investor protection.”

So fine that is all true but wouldn't you be a little worried about Finra having your data? There is some history of financial regulators not investing as much in computer security as you might hope. If a brokerage discloses a bunch of sensitive customer information to hackers, it will probably have a lot of legal liability to the customers, and that risk of liability tends to focus the mind. Finra might be less focused.

Business continuity plans were being invoked at home, too. Manley said he’s got plenty of firewood and Remy Martin in the house in case the power goes out. His two four-wheel drive cars are pointing out of the driveway.

Also tough is the New York Stock Exchange, which has been open for regular trading hours because it consists of computers and the computers don't commute, or even require cognac. Trading robots: They're a mechanism of use for market stabilization in modern conditions!

The blizzard also allowed Uber to show off how nice it is, capping surge pricing and giving some proceeds to the American Red Cross even though, as Dan Primack points out, "If you call for a black car in the midst of a blizzard, then you SHOULD be charged a TON."

Matt Levine is a Bloomberg View columnist. He was an editor of Dealbreaker, an investment banker at Goldman Sachs, a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz and a clerk for the U.S. Court of Appeals for the Third Circuit.
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